Online Retailing Technology >> Surviving the Amazon Jungle

• By Matt Villano
• 10/29/04

While many campus bookstores struggle to stay afloat, innovations in campus ‘etailing’ are helping others reclaim dollars from the big online sellers.

Whether they’re perusing the aisles of local mass merchants or clicking through mammoth eCommerce sites, few activities are as enthralling for college-age kids than shopping for CDs, books, sporting goods, you-name-it. But for Pacific Lutheran University (WA) students with cash in their pockets or credit lines supplied by parents, LuteWorld is now the place to spend. That’s because LuteWorld (www.luteworld.plu.edu)—the university’s etailing hub that was launched in the summer of 2001 as a simple extension of the campus bookstore—is now billed as the school’s “Campus Transaction Center.” Visitors to the site can buy anything from books to concert tickets to school sweatshirts. Parents can purchase birthday cakes for their kids, baked and delivered by staff at the nearest dining hall. Alumni can make donations to specific scholarship funds or buy seats for dinner at Homecoming. Students can even add money to the debit strip on their ID cards, giving themselves cash for things like laundry, vending, snacks and meals, printing, and bookstore purchases.

“There’s really nothing our students and affiliates can’t accomplish on our site,” says Mark Mulder, director of auxiliary services at the 3,400-student institution. “We knew the bookstore was one way for someone to connect with the school and purchase a product, so we sat down and asked ourselves, ‘Why not provide other ways, too?’”

That question seems to be on other minds these days, as schools expand etailing efforts. Once a back-burner offering to ensure students wouldn’t go elsewhere to buy their books and school supplies, eCommerce sites are slowly but surely becoming destinations in and of themselves; transaction centers where everyone—students, faculty, staff, alumni, even the general public—can connect with a school and spend.

And while a handful of schools are building and managing etailing efforts themselves, a far greater number are turning to vendors such as Sequoia Retail Systems (www.sequoiars.com) and Nebraska Book Company (www.nebook.com), which specialize in Point of Sale (POS) and etailing services targeted at off-the-shelf solutions looking to rebrand the functionality. Most of these solutions are delivered on a managed services basis, meaning that the school d'esn’t purchase the software, but instead uses Managed Service Provider (MSP) vendors who “host” the applications. These vendors handle everything from management to maintenance, and charge schools a monthly subscription fee, eliminating the need for institutions to worry about expensive implementations of any kind. In short, there are now dozens of ways for colleges and universities to blow out their etailing strategies. Lauren Freedman, president of the E-tailing Group ( www.e-tailing.com), a Chicago-based consulting firm that helps vendors establish eCommerce sites, probably sums it up best:
“It’s no secret that for students more so than for the rest of us, the Internet is a huge part of life,” she says. “Enabling more shopping online simply makes sense, and people are finally starting to pay attention to that reality.”

Looking Back

Truth is, etailing has been around since the early ’90s, and came of age as a legitimate form of commerce with the Big Bang—better known as the bookstore behemoth Amazon.com. Under the entrepreneurial guidance of CEO Jeff Bezos, “Earth’s Biggest Bookstore” stocked its Seattle warehouse shelves with more titles than the Library of Congress, shipping books within 24 hours of order. In many cases, Amazon’s 20 to 30 percent discount drove book prices down to the point where, even after shipping, they were cheaper than the same books at the local Borders (now an Amazon affiliate) or Barnes & Noble. Students caught on fast, and logged on to purchase their textbooks and course materials there. In response, Borders and B&N launched their own eStores.

While no national organization at the time charted how much money college students were spending at online bookstores in particular, a 2000 study by eCommerce market research firm Harris Interactive (www.harrisinteractive.com) indicated that US residents between the ages of 18 and 24 were spending almost $4 billion online per year on all kinds of goods. Given these figures, it came as no surprise when college bookstores began to see book sales sag and revenues drop accordingly. We all know what happened next: Bookstore managers resolved to fight back, and many rushed to establish an etailing presence to complement the brick-and-mortar facility, and afford students the convenience of purchasing their books online.

“While these bookstores saw the need to establish etailing sites, many realized that they couldn’t do away with their facilities and become Amazon clones,” says David Rood, director of Media Services at the National Association of College Auxiliary Services (www.nacas.org). “They had to find a middle ground, and they struggled to do it.”

Then, just as bookstores began to get the online bookselling thing down, Amazon morphed into Earth’s biggest everything store, peddling a panoply of products from clothes and electronics to home furnishings and toys. Dozens of other eCommerce sites sprouted, too, and campus bookstore managers were forced to change their eCommerce plans yet again. As we all remember, the transformation was much more difficult; online bookstores now faced the challenge of adding dozens of products, including school merchandise, basic school supplies (notebooks, pens, etc.), and more. To do this, most schools turned to higher education technology vendors such as Sequoia, Nebraska, and Missouri Book Systems (www.mbsbooks.com) for turnkey solutions that enabled them to put their entire physical inventories online.

At first, these solutions required bookstore employees to manually key in orders at the close of each business day. But by late 2002, these same vendors had developed etailing order systems that sync’d with customer POS systems on the fly, enabling bookstores to offer thousands of SKUs online and track movement of those SKUs in real time, just seconds after items were purchased. Nebraska was first to market with its all-inclusive CampusHub eCommerce solution, and Sequoia and Missouri followed suit soon after.

As these dynamic etailing ordering systems became available to higher ed bookstore retailers on a widespread scale, collegiate interest in the technology took off. Statistics from the big three POS vendors in the space indicate that more than 1,000 colleges and universities in the US and Canada signed up for etailing services between 2002 and 2003, and officials at the companies report that hundreds more have signed up since. Today, while most campus bookstore managers say their etailing sites comprise no more than 10 to 15 percent of overall sales, nearly all of the managers say they couldn’t imagine running the business without offering campus shoppers the option to buy online. What’s more, the numbers are growing: Bookstore managers have predicted that by 2005 (mere months away), more than 20 percent of sales will occur online.

Says Laura Nakoneczny for the National Association of College Stores (www.nacs.org), “These days, etailing is simply a business necessity.”

Etailing Today

A recent study by IT analyst firm Jupiter Research (www.jupiter.com) indicates that between 2003 and 2007, college students will spend over $20 billion online. With such estimates, no wonder etailing efforts at many schools have become a priority. At PLU, for instance, Mulder says LuteWorld “rules” campus life, overseeing every transaction that comes across the campus transom. With the help of Sequoia, he recently launched a service that integrates the SCT Banner (www.sct.com) registrar’s database with the bookstore’s POS System (from Sequoia), enabling students to log on to the system, check their course schedules, and—right at that juncture—purchase all of the new or used books they need. The school charges $1 to $4 in service fees for every transaction, nominal to the students, but capable of generating additional thousands in revenue at a small school like PLU (additional hundreds of thousands across a state system).

Sequoia has implemented the same service at the University of Texas in Austin, where book sales are so voluminous that the bookstore has to rent trailers to help store inventory at the beginning of every quarter. A similar service also exists at Duke University (NC), where students can order all of their books online, then head down to the campus bookstore where employees have already picked and bagged the books, and are waiting to expedite checkout. Duke also offers a delivery service (campus store employees cart books directly to students’ dorm rooms). Brian Buttram, associate director of Duke Stores, says that while he d'esn’t expect this new service to replace walk-in traffic, he d'es anticipate that as many as 30 to 40 percent of all textbook orders could eventually be filled this way—coincidentally, a good solution for a campus with tight parking, like Duke.

But Buttram emphasizes that online book sales aren’t nearly as lucrative as online sales of other merchandise, and notes that in any given year, his online store can make “millions” on Duke Basketball paraphernalia alone. At the University of Wyoming in Laramie, Manager Peggy Falgien concurs: Sweatshirts and other hard and soft goods produce the biggest ROI online, hands down. Falgien’s bookstore uses the Prism solution from Nebraska Book to handle its etailing efforts, and doles out a monthly fee of a few hundred dollars for services that include online inventory management, accounting, and the eCommerce engine itself. She adds that the online store has attracted dozens of customers that the physical bookstore never would have; in fact, a majority of her soft goods customers are online surfers from the Eastern US who want the UW sweatshirts and hats for their collections.

Terry Pepperdine, general merchandise buyer for the bookstore at Butte College (CA), reports similar results with the same Prism system. In the past, before Butte invested in etailing of any kind, Pepperdine says the bookstore dispatched trucks with books and merchandise to open up satellite locations on some of the college’s remote campuses. Now, the junior college has curtailed satellite selling, instead requiring all remote students to buy their books online, saving the school thousands of dollars in overhead. To generate additional revenue during their twice-annual online sales events, Pepperdine has programmed the Prism system to automatically push certain merchandise like sweatshirts and T-shirts as add-ons with every purchase. Generally, Pepperdine reveals, the suggestive selling works.

Other Innovations

Judging from the variety of things PLU students can buy on LuteWorld, there’s no limit to what institutions can now sell online. At Cornell University (NY), campus officials have resisted selling books online (see box, left), but have invested millions in a proprietary etailing site (www.store.cornell.edu/tc) that they designed for the sale of computers and general merchandise. The site was actually designed to help students buy their computers and related hardware, but also serves faculty and staff. According to Kevin Drake, assistant director of Technology and Digital Services for Cornell Business Services, the site replaced a print catalog that his department published three times a year to keep up with fluctuating computer prices. Now, he says, the school can adjust prices as vendor prices change, and instant ordering has freed up technicians to spend their time building machines instead of taking orders over the phone.

And at the Georgia Institute of Technology in Atlanta, students can log on to a special Web site (www.parking.gatech.edu) and, from the comfort of their own rooms, purchase annual parking passes. At the University of British Columbia in Vancouver, campus store director Debbie Harvie describes a new section of The Outpost (http://www.ams.ubc.ca/businesses/outpost), where customers can purchase pendants and necklaces customized with the school logo. Finally, at Syracuse University (NY), bookstore officials recently developed a grocery delivery service that lets students order food and toiletries along with their books; orders can then be delivered to dorm rooms for a nominal delivery fee.

“Once a school invests in setting up an etailing site of any kind, there’s not much additional cost in adding items to the list of things they can sell,” says Mike Kelly, senior VP of Nebraska Book Company.

Partnering for Dollars

To foster creativity in adding items to the mix, some leading etailing technology companies have partnered with nationwide vendors to enable academic customers to offer a virtual treasure trove of merchandise. Earlier this year, for instance, Nebraska Book inked a deal with Internet superstore Buy.com whereby students at any of the software company’s client-school etailing sites can purchase DVDs, CDs, and electronic equipment from Buy.com without leaving their campus bookstore sites. Under this agreement, a bookstore site is linked transparently to the Buy.com site, and the purchaser still thinks he or she is on the school bookstore site. When a purchase is completed, everybody profits: Buy.com makes its sale, Nebraska gets a finder’s fee, and the school earns a commission of anywhere from 1 to 10 percent.

Other vendors boast different types of partnerships with the same goal—increased access to products—in mind. With the help of eFollett (www.efollett.com), the online division of Follett Higher Education Group, more than 675 participating bookstores are tied behind the scenes to the same textbook database, giving users the impression that every bookstore boasts more than 1.2 million titles. In particular, the company has partnered with a variety of medical and eBook publishers, facilitating access to even more of these titles than Amazon boasts. Jill Blackstone, Internet Operations manager for eFollett, says the ultimate result is variety for the book-purchasing customer.

“College and university customers have told us this is what they’re looking for,” she says, pointing to the University of Notre Dame (IN) as a particularly impressive site partnership. “Etailing enables schools to go beyond the walls of brick-and-mortar and delve into [adventurous] projects.”

What’s Next

While such partnerships will inevitably become more common in campus etailing, some vendors and schools are blazing trails with technologies and strategies geared toward generating even more revenue. On the vendor side, both Missouri Book Systems and Nebraska Book Company are now testing technologies that will enable campus bookstores to track the purchases students make, and then send e-mail advertisements or promotions to those students, based upon those purchases. This model, similar to a form of marketing developed by Amazon.com, is designed to hook customers on “impulse buys,” or purchases they aren’t necessarily planning to make. The results could be impressive: Amazon d'esn’t release statistics on its success with the method, but some analysts estimate this type of customized marketing could add at least 5 to 10 percent in revenue annually.

There are other new technologies as well. Sequoia (the firm behind LuteWorld) recently unveiled “Campus Concierge,” through which customers can purchase and print out tickets (with an integrated service charge) for any number of events. A registration engine also allows community customers to pay and sign an electronic waiver for things like summer camp. In addition, the vendor has developed etailing software for handheld devices, enabling representatives from campus bookstores to sell merchandise while working the aisles of a baseball game, or to buy back books at the end of a semester from any corner of the campus. The software, WirelessPartner, is available now, and is currently in use at schools such as Duke.

On the academic side, some schools expect to develop new etailing capabilities of their own. At San Jose State University (CA), for instance, technologists are working to incorporate real-time sandwich ordering into a dormitory Intranet, enabling residents of one particular dorm to order and pay for sandwiches over the Internet from their rooms, then pick them up in the dorm lobby. And at PLU, Mark Mulder recently unveiled a gift card program that directs parents to LuteWorld to purchase gift certificates for their student children, for either the online or the brick-and-mortar store. According to Mulder, students will be able to “recharge” the gift cards by selling used books back to the bookstore at semester’s end.

“If a student sells back $100 worth of books, we’ll give him $105 or $110 on the card,” he explains. “Might we lose that money? Of course. But putting the extra dollars into purchasing through the bookstore means that the student is more likely to spend more money with us, instead of down the street.”

PLU is also innovating in the area of cross-promotions; through initiatives like its “Send-A-Smile” gift program, the school is tying together the resources of multiple departments to create profit opportunities campuswide. Under the program, parents can log onto LuteWorld and send their children birthday cakes, balloon bouquets, or giant smiley-face cookies. The initial fee for the service is collected by the bookstore, but is shared with the school’s dining services department.

Elsewhere, schools such as the University of Indiana have launched cross-promotional programs that tie the local etailing efforts to the Alumni Relations and Development offices, providing visitors with direct opportunities to donate to scholarships or the school’s annual fund. Every time a shopper purchases an item over a certain dollar amount, she is asked to add a donation (donor determines target of donation) to her order. Down the road, experts predict soliciting donations could become a highly effective application of etailing—that is, for institutions that invest time and energy in establishing such interdepartmental links.

Says Rood at NACAS, “Even if a customer isn’t an alum, once you get him onto the site to buy something, it’s 10 times easier to convince him to donate.”

The Uphill Climb

Of course, such interdepartmental efforts require total cooperation and full disclosure—two things that, in the collegiate environment, aren’t always easy to come by. At Cornell, for instance, Kevin Drake and Tom Romantic, director of Cornell Business Services, report that other departments are engaged in etailing efforts of their own; efforts that directly compete with the campus bookstore and actually cannibalize revenue. To wit: While the Cornell bookstore sells campus apparel online, the school’s Athletic Department offers it too, through an independent partnership with sports apparel maker Ivy Sport. As a result, Romantic says, bookstore merchandise sales are stunted at best, especially during basketball and football seasons.

Cannibalization from other departments isn’t the only challenge in the campus etailing world; some bookstore managers warn of etailing efforts cannibalizing their own sales in the brick-and-mortar store, as well. At Butte College, Pepperdine estimates that he loses hundreds of dollars in on-site “impulse sales” every day to his own Web site, where students log on to buy particular books. They buy the books and log off—no chance to be stopped by an enticing display. Pepperdine says some of the products that suffer most are personal items such as pens and candy, but adds that larger items such as school T-shirts and notebooks fall victim to the quick Web sales, too.

When pressed, however, Pepperdine reveals that his etailing goal is simply “not to lose money.” This, of course, highlights the biggest challenge of all: Figuring out a way to transform eCommerce from a loss-leader to a legitimate profit source. At schools like PLU and Duke, bookstore managers have diversified services enough to keep the effort in the black and grow it steadily. And at the University of Wyoming, Falgien manages cost benefit another way: While much of the merchandise in her brick-and-mortar bookstore is eventually marked down, she has instituted a policy of no sale prices on her etailing site, ensuring that, at the very least, she breaks even over time.
No matter how a school manages etailing, a sense of reality is paramount, say the pundits. Even an effort like LuteWorld represents only 20 percent of total textbook purchases, and most bookstore managers would be delighted if they garnered as much as 10 percent of those dollars online. As technology improves, these numbers should increase proportionally, say analysts. In the meantime, it’s clear to most campus bookstore professionals that the Amazon approach might not be the smartest route to profit, and that a balanced strategy that incorporates both etailing and traditional brick-and-mortar is the best bet.

“There will come a day when etailing is everything,” says Falgien. “Until then, finding a way to supplement the physical campus store with targeted online sales is where I think all of us are focused.”

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